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“Fiscal Cliff” Deal Seems Increasingly Less Likely

Barring some last minute deal it seems America is going over the “fiscal cliff.” Which given the perverted incentives of Washington may be just what some people are longing for:

For many Republicans, a cliff dive means blaming President Barack Obama for a big tax hike in the short term and then voting to cut taxes for most Americans next month. That’s an easier sell back home in Republican-heavy districts than a pre-cliff deal that raises taxes on folks making over $250,000 or $400,000, extends unemployment benefits and does little if anything to curb entitlement spending. If they back a bad deal now, they run the risk of facing primary challenges in two years.

For Democrats, the cliff is better than setting a rich man’s cutoff in the million-dollar range — or worse yet, extending the Bush tax cuts for all earners — and slashing Medicare and Social Security to appease Republicans. They, too, see an advantage in negotiating with Republicans who will feel freed from their promise not to vote to raise taxes once the rates have already gone up.

But there have been talks. One of the stumbling blocks appears to be the estate tax:

President Obama is reaching out to Senate Democrats and Republicans to strike an eleventh-hour deal to avoid the fiscal cliff, even as lawmakers grow increasingly skeptical about the likelihood of success…

The consensus that emerged during the meeting is that Senate Republicans could accept a deal that extends the Bush-era income tax rates for a vast majority of the populace and also extends the 35 percent tax rate on inheritances over $5 million per spouse, according to the GOP lawmaker…

Liberal Senate Democrats may balk at the prospect of extending the estate tax in its current form. Many liberals were furious after Obama struck a deal with McConnell two years ago extending all of the Bush-era income tax rates and setting the estate tax at its current level.

To recap the conservative position – taxation disincentivizes whatever activity is taxed. Tax income – people will be less productive. Tax sales – people will buy less goods and services. Tax capital gains – people will invest less. Tax inheritance… people will be less interested in inheriting money? Obviously this is an issue worth going over the “cliff” for.